A pair of factor ETFs are in a hot streak that should last into early the new year, according to Bank of America. ETF strategist Jared Woodard said in a note to clients Monday that funds focused on quality stocks should continue to outperform in the coming months, naming the Pacer US Cash Cows 100 ETF (COWZ) and the FlexShares US Quality Low Volatility Index Fund (QLV) as his favorite funds in this group. “COWZ is our top pick with a gold standard free cash flow yield screening. QLV has high exposure to our analysts’ favorite sectors and stocks, resulting in strong risk-adjusted returns,” wrote Woodard. Factor investing is a strategy based on using financial statement data to identify large groups of stocks with similar profiles. Free cash flow relative to enterprise value is the best metric for determining quality, Bank of America said. Stocks that perform well on this metric have outperformed the S&P 500 by about 7% annually since 1992, the release said. Both funds identified by Bank of America topped the S&P 500 last year and have continued to outperform even as the market recovered from its October lows. After the first week of the year, the COWZ fund has delivered a total return of 8.2% over the past three months, while the QLV fund is up 7.8%. According to FactSet, the funds have net expense ratios of 0.49% and 0.22%, respectively. COWZ 3M Mountain The Cash Cows ETF has been hot for the past eight months. Even with this outperformance, the funds still look cheap on a historical P/E basis. Both funds “are trading well below their average P/E, suggesting there is still time to switch to quality at an attractive price,” Woodard wrote in the note. “COWZ has top weights in energy and materials, where P/E’s have fallen from summer highs and remain below average. Likewise, QLV has large weights in Apple and Microsoft, both of which P/E ratios have returned to pre-pandemic levels,” he added. Some of the largest positions in the COWZ fund are chemicals makers Dow and LyondellBasell, while Microsoft and Johnson & Johnson are according to FactSet are the largest holdings in QLV – CNBC’s Michael Bloom contributed to this report.
https://www.cnbc.com/2023/01/10/some-quality-etfs-are-still-cheap-after-solid-2022-one-bank-says.html Some “quality” ETFs are still cheap after solid 2022, says one bank